The Price of Amazon Prime is Going Up; Will You Still Pay?

Amazon Prime offers free 2-day shipping on over 19 million items for $79 a year — a price that has not changed in nine years. Until now. How much is Amazon Prime worth to you?

At this point in time, it’s no longer of a question of whether Amazon Prime rates will go up in 2014, but when—and by how much. The service, which costs $79 a year, is unsurprisingly popular: It offers free, unlimited two-day shipping on more than 19 million items.

Yet that $79 price point has remained unchanged since Prime debuted nine years ago, while gas prices during the same time period have shot up by 50 percent or more in many parts of the country. Amazon has also prepared customers for the inevitable, hinting during its quarterly earnings conference call in January that rates might jump anywhere from $20 to $40.

That raises two questions from my perch: First, who might stick around (and who might flee) in the wake of a Prime price hike, and what kind of increase Amazon can get away with—if any.

“I think the reason you’re hearing about it now is that this is a quiet window to start socializing the idea and feel out the potential backlash or fallout,” says Tim Nelson, president of Tris3ct, a Chicago-based leading, independent marketing agency.

Nelson, who has an extensive background in retail strategy and shopper marketing, adds: “There is a ceiling on how high they can go before seeing a significant drop off in new sign-ups. At the same time, most of their loyal users are getting sufficient value that they would be willing to pay significantly more.”

So what’s the ceiling? Nelson thinks that “even at $119, it is a great value for a heavy user and not out of line with premium memberships at some club stores. They could always promote off that level for new subscribers much like the way telecom players operate.”

Nelson’s take makes sense, but it’s also hard to predict how much time shoppers need to get used to the idea of higher Prime. For now, at least, it may be a non-starter: In a survey of more than 6,400 current Prime customers, Prosper Insights & Analytics found that 63 percent of consumers would only pay the current $79 fee for Prime. An additional 29 percent would pay $89 – $99, and only 8 percent would pay $109 or more, a $30 minimum increase.

“Every other competitor out there will be upping the ante and trying to get those shoppers, so Amazon has to be very careful from a lot of different angles,” says Pam Goodfellow, Prosper’s consumer insights director. She adds that few consumers willing to pay $109 for Prime are younger, predominantly male and have more money to spend—most heavily on the electronics.

To break it down: Members willing to keep Prime at that price point maintain average household incomes of nearly six figures; 75 percent are under 45 and 65 percent are male. And for these consumers, it’s worth it to keep Prime to have the convenience of automatic free shipping on high-ticket items ranging from stereo speakers to big-screen HDTVs.

Whether customers stay or go in the event of a price hike could indeed boil to the variable that consumes Amazon CEO Jeff Bezos: speed of delivery. (He famously predicted a few months ago that drones will deliver packages to customers within the next five years via “Amazon Prime Air.”)

“Consumers have to decide whether it makes sense to bear a higher cost to receive packages in two days as a Prime member, versus roughly 3.5 days for standard shipping,” says Jordy Leiser, CEO of StellaService, a retail customer service analytics company. “Our data shows that standard deliveries take longer on average for consumers on the West Coast, so paying for Prime membership may make more sense for people living in that part of the country.”

Then again, when StellaService examined more than 100 major retailers in the second half of 2013, it found that Amazon Prime was hardly alone in the quick delivery game. “Consumers can order many of the products offered by Amazon from Amazon-owned Zappos and Diapers.com, which will consistently deliver in roughly two days for free,” Leiser says.

And indeed, if Prime rates go a bit too high for the tastes of some shoppers, it could be enough to send them looking for more cost-effective options. Then again, it may pay to do the math before bolting away to the arms of another e-tailer.

Let’s suppose that the average shipping charge for a package runs $8. At the current cost of Prime, you only need to order 10 items to recoup your investment. But even if Prime goes up to, say, $119—a $40 jump, or nearly 50 percent—you’d only have to order 15 items to break even. That may sound like a lot, but averaged out over a year, it’s slightly more than one item per month.

And yes, Prime is more than just shipping on the items you buy. It also includes access to Amazon Instant Video, which has more than 15,000 titles, and Amazon’s Kindle library. One scenario has Amazon unbundling some services with different pricing levels for streaming services, the Kindle library and shipping,” says Laura Heller, executive editor of FierceMarkets Retail.

“Another has it adding more services including next day or even same day delivery in more markets,” she adds. Could there be some kind of dramatically different new offering? Sure. If Amazon is planning to hike Prime pricing, it’s entirely possibly there will be some kind of new service that would compel customers to pay it.”

Now it’s your turn: What would you pay to keep Amazon Prime, or what would it be worth to you as a new subscriber? Let us know what you think below.

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About Lou Carlozo

Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with DealNews.com, and a former managing editor at AOL's WalletPop.com. Contact him with story ideas for Money Under 30 at feedbacker@aol.com, or follow him via LinkedIn and Twitter (@LouCarlozo63).

I think $100 is the most I would be willing to pay. I order 2-3 times a month off Amazon and enjoy the 2 day shipping, but I think I would be able to wait the extra day or two on most items if need be.

I think if they made the memberships monthly, it wouldn’t be so bad. I wouldn’t think anything of $10 a month but as soon as you say $120 yearly membership, it just seems like so much.

Also, if I can still keep my family in my plan, it will be worth it. Currently I have my husband, mom, and brother on my plan and between the 4 of us, I feel like I get my money’s worth. If they made it so that other accounts in my family could get free streaming as well, I would be willing to pay more as well.

I currently share a Prime account with a family member (two separate mailing addresses). I’ve never done the math but guess that I barely break even on my half in free streaming videos and shipping compared to pay-per-use. Most of my orders would qualify for the free shipping threshold anyway and 99% of the time, the slower speed is adequate for my needs. So with a price hike, I’d discontinue the membership.

I’ve had a Prime subscription for years, and it’s invaluable. I buy games and toys for my kids, stuff for the office, and even household goods. We use the Prime streaming service for movies and television (we’re cord-cutters, so no cable bill for us), and that alone saves us hundreds of dollars each month. Just think – if the price goes up $12 per year, that’s $1 per month – about $0.03 per day.

I don’t like the idea of paying more but if I look at how much I would pay on shipping without Prime, I think even with a $40 price jump I’d still be saving money. I’ve also become accustomed to the convenience of the service. It saved my butt at Christmastime.

I’d keep doing it for $89 – MAYYBEEE $99, but that’s a stretch. I don’t really stream the videos or borrow the books, so fine with me if they want to unbundle those features and charge less (or stay the same) for shipping-only.

I’m surprised at the people who are so sensitive to even a $10 price increase over the course of a year. That’s essentially the cost of 2-day shipping for one purchase or 2 coffee purchases. I more than break even with my Prime subscription and would really only start questioning the fee if it was over $150, and probably stick around up to $200.

I suppose I am in that small minority who’d be willing to pay up to $120 on Amazon Prime. I’m a 27-year-old woman who makes about $50,000, so I’m not some rich six-figure making dude.

For me, it’s simple math and cost consideration. 90% of the things I purchase, I purchase online, and probably at least 70% of the household items I use (like cooking utensils as well as large electronic purchases and books) are from Amazon. I also buy some grocery items (like water cases and toilet paper) from Amazon. I buy pretty much all of the gifts I get for people on Amazon. I also order a lot of things from Amazon that I need within 2 days. If the average cost of shipping for each item (3-5 business days) is $8, then I definitely save money on my Prime investment and will continue to save money on Prime. I also consider the fact that I usually choose to go with Amazon to purchase things online – as opposed to Target or Walmart – because I don’t have to pay additional shipping if I go through Amazon, even if the Amazon item is $1-2 more.

I’m also about to move to a more remote location, so while in my current city I could probably get non-Prime things in 3 days, in my new location it’ll probably take 4-5 business days to get my stuff. I think if Amazon were to raise their price by $40 per year, that’s about $3 extra per month that I have to set aside. So one less latte that I probably shouldn’t drink anyway, or maybe a bag of chips. Totally worth it.

All the people who are threatening to cancel if Amazon raises it more than $12 will probably end up spending more money on shipping in the long run if they do.

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